Brazil plans to exempt rail projects from ICMS tax

Brazil’s transport ministry defended the exemption of the ICMS tax for rail projects.

“The railway segment requires high capital to get projects off the ground… Our idea is to work towards an investment portfolio of around 40bn reais [US$8.16bn] which will guarantee connectivity in our country. It's quite significant," transport minister Renan Filho said in a statement.

According to the ministry, the end of the ICMS tax on rail projects is likely to fuel demand for rolling stock and engineering works and reduce the costs of undertaking projects by 15%.

"The measure planned by the federal government is highly positive for the sector, but I believe it’s not easy to implement since this measure will have to be negotiated with state governments, and we know that there are many states with tax collection problems," the president of rail equipment manufacturers’ association Abifer, Vicente Abate, told BNamericas. 

The federal government plans to include the ICMS exemption in the national rail development plan, which is being prepared to encourage construction of railroads and rail terminals.

Along with lifting the ICMS, the government plan includes accelerated depreciation, which allows companies to deduct more quickly investments from their taxable income, incentivizing machinery acquisition.

"In the past, the accelerated depreciation mechanism was positive for the sector, since purchases made by companies of locomotives, wagons and other rolling stock are included in the program," said Abate.